Tuesday, May 20, 2014

Congress Raises More Concerns Regarding SIFI Designation

Congress Calls into Question FSB's Role in SIFI Designation

Congress has once again raised concerns about the Fed's plans for non-bank SIFIS.  In a May 9, 2014 letter to Treasury Secretary Jack Lew, Fed Chair Yellen, and SEC Chair Mary Jo White, members of the US House of Representatives Committee on Financial Services questioned the role of the Financial Stability Board, an international body which is an unincorporated Swiss association with no authority or oversight under US law, in the process for designation of G-SIFIs. The authors of letter are generally concerned “about decisions being made that could have a significant impact on the U.S. economy and its citizens through a nontransparent process, by an international body that is not accountable to the American people.”

The letter criticizes enormous power invested in the FSB in the G-SIFI designation process, as well as the complete lack of transparency and oversight of the international body. Under the Dodd-Frank Act, an independent Financial Stability Oversight Council (FSOC) was established to make SIFI determinations in the US. The Committee members feel that the FSOC may be abdicating its responsibilities to develop a SIFI designation process by deferring to the FSB.  As a result, the letter requests information on how FSOC’s designation process relates to the FSB’s process, and demands assurances that SIFI determinations in the US are, indeed, being made by the FSOC as required by law. In addition, the letter requests that the FSOC and the FSB disclose specific metrics underlying the designation of non-bank SIFIs, including a clearer and more uniform definition of "systemic risk." Going forward, the Committee demands better transparency.  The letter asks that each FSOC and FSB designation receive a rigorous analysis that is recorded and disclosed in a full factual record.

Among the other concerns raised by the May 9 letter is that firms being considered for G-SIFI designation are effectively locked out of the process.  Under the current designation regime, no provision is made allowing such firms to meet with the FSOC and/or FSB during the determination.  In addition, there is currently no process in place by which a G-SIFI once designated can have the decision reversed or revisited.  The letter requests acton in those areas as well.